Protecting Assets Using Powers of Attorney for Business Structures

Are you a director or trustee of your business, trust, or SMSF?

Have you considered what would happen if you were incapacitated or abroad and unable to sign crucial documents?

When running a business or a trust, it’s crucial to think about contingency plans.

• What if you lose capacity as a sole director?
• What if you and your partner, both trustees of your SMSF, are overseas?
• Who will make critical decisions or pay bills if you’re not around?
• If you die unexpectedly without a succession plan, what happens to your business?

A clear, legally binding plan for delegating decision-making powers is essential. This is where a Power of Attorney (POA) comes into play.

A Power of Attorney is a formal document that grants one person (the attorney) the authority to act on behalf of another (the principal). While personal POAs are common, they may not cover all your business entities.

Why Implement Entity Powers of Attorney?

If your business entities own assets requiring active management, a personal POA may not suffice. This is particularly concerning for small and family businesses where control is often centralised. An entity POA ensures continued management of business entities even if you are incapacitated or deceased, providing stability during the early days of estate administration.

For businesses with employees, contractors, suppliers, and accounts to pay, an entity POA offers peace of mind, ensuring operations continue smoothly. It also protects business assets from claims due to contractual breaches while control issues are resolved.

Moreover, an entity POA allows business owners to take breaks, knowing that operations and paperwork will be handled in their absence.

The Limitations of Personal Powers of Attorney

A common misconception is that a personal POA allows an attorney to act in all capacities, including as a director or trustee. However, this isn’t necessarily the case. For example, company directors cannot delegate their responsibilities to an attorney.

SMSFs are governed by specific superannuation laws and regulations. While a personal POA can be relied upon, it may not align with your preferences for SMSF control.

When Do You Need an Entity Power of Attorney?

You should have entity-specific POAs if:

• You are the sole director of a company running your business.
• You have a corporate trustee with one or two directors.
• Your SMSF trustee company has one or two directors, and you want specific directions for control or appointing someone different from your personal attorney.
• Your company has ongoing obligations, such as wages and accounts to pay.

You may not need an entity-specific POA if:

• The trust deed includes successor appointments in case of incapacity.
• The entity holds only passive assets.
• The entity doesn’t require regular payments.
• You are content with your personal POA for your SMSF.

Entity POAs can be limited to specific transactions or purposes, providing flexibility for directors who may be unavailable during critical times.

How to Implement an Entity Power of Attorney

The process varies based on the entity:

• For a company, use legislation and a POA deed. Some states provide forms.
• Trusts require specific authority within the deed to appoint an attorney.
• SMSFs, governed by superannuation laws, need careful consideration of attorney appointments.

Choosing the Right Attorney

Your attorney should be over 18, an Australian resident, and legally capable. You can appoint multiple attorneys and dictate their actions. Choose someone with appropriate experience and no conflicts of interest.

Incorporating both personal and entity-specific POAs is part of safeguarding your business, trust, or SMSF. Aligning POAs with your succession plan is vital. Don’t leave these critical decisions to chance; think proactively about who will step in when needed.